Irish banks under ECB supervision from 2014

Irish banks will come firmly under the supervision of the European Central Bank from Mar 2014, following agreement on what is seen as the first building block of banking union.

The ECB is to have ultimate responsibility for overseeing all eurozone banks following the landmark agreement in Brussels, which is seen as the first step towards breaking the link between banks and the sovereign that brought Ireland to its knees.

It will give the Frankfurt-based body full investigative powers and allow it to intervene in any of the eurozone’s 6,000 banks and to impose penalties, including fines and withdrawing licences.

The legislation is expected to be in force by March while it will be a year later before the full new system is in place. National supervisors will remain and continue to have a day-to-day role to play in some aspects of all banks, and a bigger role in those not directly under the ECB.

Just which banks would come under the ECB was hard fought over the past few months as Germany wanted to avoid many of its hard-pressed lander, or regional banks, leaving German control completely.

The French on the other hand wanted the Frankfurt based institution to take over all banks. But the ECB itself said this would require very significant staff and could prove virtually impossible.

Following 14 hours of negotiations and several compromises, finance ministers reached agreement that met this and many other reservations of various member states. This included classifying what banks would come directly under the ECB — the three large one in each member state; those with assets of €30bn or assets that represented a fifth of their country’s GDP; and those that have been bailed out. The rest will be under their national supervisors who will meet regularly in Frankfurt and who will give details and access to banks as requested by the ECB.

The ECB may also take over supervising a bank at the request of the rescue fund, the ESM.

The issue of how to deal with banks not in the eurozone caused much friction, especially from Britain, Sweden and the Czech Republic. All three say they will remain outside the supervisory system, but the door has been left open for them.